Monti Presses National Leaders for Action to Back Draghi

Italy’s Prime Minister Mario Monti is seeking to capitalize on pledges last week from European Central Bank President Mario Draghi and German Chancellor Angela Merkel to defend the euro against speculation that sovereign defaults will tear the common currency apart. Photographer: Jock Fistick/Bloomberg

Aug. 1 (Bloomberg) -- Italy’s Prime Minister Mario Monti is
pressing his European counterparts to sign on to collective
action to fight the financial crisis, trying to bridge a north-south divide in the euro area for help to lower borrowing costs.

Monti, who is due in Helsinki today for talks with Finnish
Prime Minister Jyrki Katainen, is seeking to capitalize on a
pledge by European Central Bank chief Mario Draghi to do
whatever it takes to defend the euro. Bundesbank President Jens
Weidmann said the ECB shouldn’t exceed its inflation-fighting
mandate, according to an article published on the German central
bank’s website today.

Monti has found common cause with French President Francois
Hollande and Spanish Prime Minister Mariano Rajoy on stepping up
efforts to resolve the crisis. Leaders in Germany and Finland
have proven less willing to commit more help.

“The question is whether the Germans and the Finns have
the stomach for a much looser ECB policy that is more suited to
the south, and so far we haven’t seen much appetite for that,”
Jonathan Tepper, a partner at London-based investment research
firm Variant Perception, said by phone. “Neither seems to want
to budge.”

Italy’s 10 year-bond yield fell 12 basis points to 5.97
percent at 11:55 a.m. in Rome. That’s still more than 1
percentage point higher than in early March and 464 basis points
more than similar-maturity German debt. Spain’s 10-year bond
yield fell 7 basis points to 6.68 percent.

Obama Call

Almost three years since the crisis surfaced in Greece,
Monti is leading efforts to strengthen Europe’s bailout capacity
and help lower bond yields that have surged to euro-era records.
President Barack Obama called Monti yesterday and “reiterated
his support for decisive action to resolve the crisis,”
according to a White House statement.

“We can’t allow ourselves even a moment of distraction,”
Monti said to reporters yesterday in Paris after a meeting with
Hollande. Today, Monti will talk with European Union Economic
and Monetary Affairs Commissioner Olli Rehn as well as Finland’s
prime minister and president before heading to Madrid, where he
is due to meet with Rajoy tomorrow at the same time as Draghi
holds his regular press briefing.

Italy might want Europe’s rescue funds and the ECB to buy
its bonds, Monti told Finnish newspaper Helsingin Sanomat in an
interview published today, stressing that the country doesn’t
need a bailout. “We’re thinking of a possible intervention in
various combinations,” involving the temporary rescue fund, the
permanent European Stability Mechanism and the ECB, he said.

‘Very Skeptical’

German lawmakers are reluctant to follow such a course.
“It’s not the job of the ECB to provide state aid,” Horst
Seehofer, the Bavarian prime minister who heads the Christian
Social Union, sister party to Merkel’s Christian Democratic
Union and one of three coalition partners, said in an interview
with ZDF television on July 29. “I’m very, very skeptical.”

Markets are awaiting the establishment of the 500 billion-euro ($615 billion) ESM, which is on hold pending a decision by
Germany’s Federal Constitutional Court, set for Sept. 12.

Merkel and her Cabinet ministers have ruled out any move to
grant the mechanism access to ECB liquidity via a banking
license, a proposal that would allow the permanent ESM to wield
unlimited firepower, Economy Minister Philipp Roesler said.

Fiscal Discipline

“The chancellor and we have discussed it and we are united
that a bank license cannot be our way,” Roesler, who is also
vice chancellor, told reporters in Berlin today after he stood
in for Merkel at the weekly Cabinet meeting. “Fiscal discipline
and economic reforms have to be the way forward. Other ways are
not suitable.”

In AAA-rated Finland, leaders too have been more resistant
to facilitating rescues. Finland, the northernmost euro member,
demanded collateral for Greece’s second bailout last year and
has since insisted it will only contribute to Spain’s banking
rescue if it gets similar security. Finland also wants rescue
funds to come with strict terms such as austerity and burden
sharing for bondholders.

All the same, the past month has seen some evidence of a
rapprochement between northern and southern euro members, with
German Finance Minister Wolfgang Schaeuble voicing his support
for Spain’s austerity drive after Rajoy unveiled a fourth
package of cuts since taking office in December.

Monti and Merkel are both pushing for rapid implementation
of a June European summit agreement that would ease the purchase
of distressed sovereign debt by the region’s rescue funds. He
and Merkel agreed the decisions must be put in place “as
quickly as possible” after speaking by phone on July 28.

“Monti is the only premier in the area who has the
capability and the experience to play the role of mediator,”
said Alberto Mingardi, head of the pro-free market Bruno Leoni
research center in Turin. Monti’s travels this week are
“journeys of hope for him and for the euro.”